INFLATION IS BACK, BUT EXPERTS AREN'T WORRIED

Every time a new James Bond thriller is released, the pitch to movie-goers is: "Bond is Back." And on the economic scene these days, the same can be said about inflation.

"To the extent that it was almost gone for three years, inflation is back," said R. Thomas Powers, chief economist with Goodkin Research Corp. in Lauderdale-by-the-Sea.

With inflation currently running at about 4 to 5 percent a year, Powers and other experts aren't waving a red flag now. There's not even consensus about how much inflation is economically acceptable.

But that rate of increase -- if it continues -- is sufficient to about cut in half the dollar's purchasing power by the end of the 1990s, economists said. Whether that happens is anyone's guess. But experts express some concern about the outlook and add that workers in South Florida and nationwide may well feel an increasing pinch in their paychecks over the next several years.

"It's hard to see inflation getting out of the single-digit range, but we're looking for progressively higher rates" up to perhaps 8 percent within five years, said Steve Morrell, a regional economist for Southeast Bank in Miami.

The formula for calculating the Consumer Price Index, revised earlier this year by the federal government, will be tracking more accurately whatever increases occur.

The new "market basket" index -- which reflects shifts in people's spending habits and the prices of important goods and services -- gives more weight to such items as the cost of rent and entertainment and less to others such as mortgage payments and food.

The index -- last updated in 1978 -- is the basis for changes in payments to Social Security beneficiaries, food stamp recipients and federal retirees, groups that include millions of Florida residents. It also influences such payments as alimony, child support and commercial rents, affecting many other people in the state.

The new index comes at a time when a variety of factors are contributing to the gradual increase in prices.

Record growth in the nation's money supply over the past two years or so, Morrell said, "could ultimately come home to roost in the form of higher inflation."

Meanwhile, oil prices, which affect the prices of many products, have increased to more than $18 a barrel from about $10 last October.

The dollar's tumbling value -- which is slowly making Americans' penchant for foreign goods an expensive preference -- gives U.S. companies an incentive to raise prices as well, economists said.

Even what seems to be good news could eventually become a detriment. If the U.S. economic expansion continues -- and if the $170 billion trade deficit is pared significantly -- further increases in the inflation rate seem likely, said Norman Robertson, chief economist at Mellon Bank in Pittsburgh.

That's because as prices of American goods fall in overseas markets due to the dollar's declining value, U.S. companies will be able to sell more abroad. Initially, that could benefit states such as Florida, where international trade has been growing in importance, he said.

But to produce more export goods, U.S. factories will have to operate at higher capacity than the current 80 percent level. Manufacturers could be running at 90 percent of capacity by 1991 -- a level that typically leads to shortages of supplies and production delays.

"We could be experiencing considerable capacity constraints by the 1990s, and the last time we experienced that was when the inflation rate was in the double-digit range," Robertson said.

That problem may be diminished because some foreign currencies have better held their value relative to the dollar than others, other experts said. Manufacturers in countries such as South Korea could therefore maintain their export price competitiveness and offset some of the need for higher U.S. output, they said.

Even so, higher U.S. prices seem likely. "There's a whiff of inflation in the air," said Martin Sass, president of M.D. Sass Investor Services in New York.

At first, Florida industries such as real estate could benefit, because inflation tends to increase the value of tangible property such as homes and office buildings.

"Inflation is great for investment in real assets, and Florida can burn incredibly hot and grow like crazy," said Powers of Goodkin Research.

But inflation ultimately stunts economic growth, Southeast Bank's Morrell said. And the expectation of rising prices -- which affects the behavior of consumers and investors in Florida and elsewhere -- tends to be a self-fulfilling prophecy, he and others noted.

"We're beginning to see the inflationary expectations creep into the financial markets, and the general public doesn't lag far behind those who follow it day to day," Morrell said.

Contrary to many experts -- who said inflation in large part is driven by wage increases -- Robertson and Morrell said the paychecks of workers across the nation may lag price increases in the next round of inflation.

That's because in the past, union clout at contract renewal time often produced solid long-term pay increases for members, they noted. Now union power is waning at a time when international trends are fostering inflationary pressures -- a trend that could leave many workers playing catch-up, at least for a while.

"Wage increases are not instigating the new round of inflation, because many of the most powerful labor unions are concentrated in older industries, which have stagnated or declined," Robertson said.

Morrell agreed. "A wage is just the price of labor, but given some of the changes in the U.S. economic structure, it's likely we'll see other prices rise and wages following them."